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What's 🔥 in Enterprise IT/VC #314
Themes from VC Annual Meetings
We had our annual investor meeting this past week in Miami 🌴, and let me share some thoughts from our own presentation and overheard in conversations with institutional LPs and founders.
Many LPs have been doing the annual meeting tour during the last month and the focus in pretty much every VC presentation was how much cash runway portfolio companies had. While no one can predict the future, investors discussed pain to last from 12 - 36 months - yes, up to 36. In our presentation we showed how we’ve worked closely with our founders during the last several quarters to make sure their business plans aligned with reality which resulted in the vast majority of portfolio cos having > 24 months runway.
Mark downs across VC portfolios are all over the place. Some have taken 25-30% arbitrary writedowns across the board while others were more targeted. Expect more writedowns in VC performance to come after Q4. The long term LPs understand that it’s not what performance is today but ultimately what the real cash on cash returns will be in the future. For those VCs who have limited track records, LPs are heavily discounting investment performance based on writeup during the bull market.
For some companies who have been quite efficient, it’s also a time to grab market share as other pull back. This can be an incredible time to perhaps focus more on smaller lands and logo acquisition with expansion later versus large deals which are under increasing scrutiny.
Unanimously, investment pacing is down across the board as folks are still waiting for the bottom to hit. Case in point is EV/NTM multiples for the Top 5 Median Cloud cos went from 15x to 11x in just a week. Growth is dead for the most part unless you’re raising structured rounds with debt. It will pick back up late next year, and there will be a clear bifurcation between the best in class companies and the rest.
Many multistage VC firms have been investing heavily in seed which is much more insulated from the month to month economic headwinds.
We hear this all of the time but today is the absolute best time to start a company and be a day one investor. You have to be truly nuts and on a mission to start a company in this environment.
However if launched successfully, you will have less competition on day one and access to talent will be better than ever. On the investment side, many founders starting companies today know not to scale prematurely until product market fit and the cash will last much longer. Along those lines, we just closed 3 new lead investments in just the last 3 weeks after a slow summer. The median cash raise was $3m for all 3. In prior cycles it would have been $5M or more and the cash would have still lasted 24 months meaning that all the inefficiency in the system is being flushed out.
Stay the course - there will be pain but it will get better!
As always, 🙏🏼 for reading and please share with your friends and colleagues!
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